South Korea Tightens Threshold for Single-Stock Leveraged ETF Trading: Individual Investors Must Have 30 Million KRW in Cash from July 31

Odaily reports that the Financial Services Commission (FSC) of South Korea has announced it will advance the implementation of strengthened basic deposit requirements for single-stock leveraged ETFs and ETNs to the end of July. Starting July 31, individual investors who wish to newly purchase or make additional purchases of single-stock leveraged ETFs/ETNs must hold at least 30 million KRW in cash in their account as a basic deposit. This measure applies to single-stock leveraged ETFs and ETNs listed both domestically and overseas. The financial authorities stated that the decision to accelerate the strengthening of investor protection measures was made due to the rapid growth in market capitalization and trading volume of these products since their launch on May 27, and the increased volatility in the stock prices of major memory chip companies.

Data shows that the total market capitalization of the 16 single-stock leveraged products currently on the market has grown from 4.4 trillion KRW on May 27 to 11.9 trillion KRW on July 15, while trading volume has also increased from 10.4 trillion KRW to 13 trillion KRW. Under the previous regulations, individual investors purchasing single-stock leveraged products needed to meet a basic deposit requirement of 10 million KRW, with assets such as stocks, ETFs, and bonds being convertible into the deposit. After the implementation of the new regulations, the basic deposit standard has been raised to 30 million KRW, and only cash assets are recognized, with securities-type assets no longer accepted for conversion.

Additionally, funds from securities sales can only be counted towards the basic deposit after settlement is completed on a T+2 basis and the funds are actually credited. Loan amounts obtained using the proceeds from sales as collateral are also not included in the deposit scope. The FSC stated that this move aims to restrict high-frequency circular trading behavior where investors sell and immediately repurchase leveraged products on the same day.

The 30 million KRW cash deposit standard also applies to existing investors making additional purchases, though selling operations are not subject to the deposit restrictions.

The South Korean financial authorities previously suspended the new listing of single-stock leveraged ETFs/ETNs starting July 16 and restricted related advertising. Future plans also include strengthening the premium rate management mechanism for the products, shortening the designation process for investment warning items, and promoting adjustments to trading units.

The FSC stated that it will continue to monitor market trends for the related products and will consider taking further supplementary measures if the market overheating phenomenon does not subside. (Chosun)